June 4th, 2021 by Charles Duncan, Senior Technical Director
On Friday, May 28th, 2021, the Treasury Department released the Green Book, also known as the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals. Though the Green Book is not
new law, it provides invaluable insight into the administration’s tax priorities for this session of Congress.
Key highlights include:
- Increase the corporate tax rate from 21% to 28% for tax years beginning after December 31, 2021.
- Impose a new 15% Book Tentative Minimum Tax for tax years beginning after December 31, 2021. This would apply after book NOLs, general business tax credits, and foreign tax credits. The tax would be limited to large corporations with income more than $ 2 billion.
- Provide a 10% onshoring jobs and business activity tax credit that would be effective after enactment. Though capital expenditures would not be eligible, the repair expenses of refurbishing facilities and research expenses (that are otherwise non-creditable under § 41) of onshoring business processes might be eligible for the credit.
- Expand the Low-Income Housing Tax Credit for calendar years 2022-2026 (with some permanent provisions).
- Create a new Neighborhood Homes Investment tax credit for 2022 through 2031 to support the new construction, or substantial rehabilitation, of homes for sale or substantial rehabilitation for existing homeowners in distressed urban, suburban, or rural areas. This credit could apply to single family residences, multifamily dwellings up to a fourplex, condominiums, and housing cooperative residences.
- Eliminate fossil fuel tax preferences such as the amortization of pollution control facilities for tax years beginning after December 31, 2021.
- Increase the rate for the investment tax credit for energy property back to 30% for eligible property beginning construction after December 31, 2021, and before January 1, 2027. After 2025 the credit phases down to zero over five years by 20% per year.
- Eligible energy property would include investments in solar and geothermal electric energy property, qualified fuel cell power plants, geothermal heat pumps, small wind property, offshore wind property, waste energy recovery property, and combined heat and power property.
- Starting in 2022, the investment credit would be expanded to include stand-alone energy storage technology that stores energy for conversion to electricity and has a capacity of not less than five kilowatt hours.
- Instead of a general business credit, taxpayers would have the option to elect a direct cash payment option.
- Expand the § 48C qualifying advanced energy project tax credit include industrial facilities; recycling in addition to production; and expanded eligible technologies, including energy storage and components, electric grid modernization equipment, carbon oxide sequestration, and energy conservation technologies. The credit would receive additional funding effective after December 31, 2021.
- Extend the § 45L Construction of New Energy Efficient Homes tax credit through December 31, 2026, increase it to $2,500 per unit, increase the energy savings percentage from 50% to 60%, and make certified Energy Star homes eligible for the credit if heating and colling consumption is 15% lower than a comparable unit under the 2018 IECC standards.
- Increase the § 179D Energy Efficient Commercial Buildings deduction from $1.80 to $3.00 per square foot for property placed in service after December 31, 2021. The partial deduction would be increased from $0.60 to $1.00 per square foot. The required energy efficiency standard would drop from 50% to 30%.
- Create a new general business tax credit for qualifying mechanical insulation labor costs equal to 10% of the costs incurred after December 31, 2021, and before January 1, 2027, on property placed in service in the United State that satisfies certain energy loss reductions.
- For tax years beginning after December 31, 2021, increase the top marginal individual income tax rate to 39.6 percent with thresholds indexed for inflation using the C-CPI-U for post2022 tax years.
- Increase the capital gains rate to the ordinary income tax rate for adjusted gross incomes of more than $ 1 million for gains required to be recognized after the date of announcement.
- Transfers of appreciated property by gift or on death would be treated as realization events.
- In general, this proposal would require gain recognition at least every 90 years, with the first recognition in 2030, for assets of trust, partnerships, or other non-corporate entities.
- Subject all pass-through business income of high-income taxpayers to either the Net Investment Income Tax or the Self Employment Contributions Act tax for tax years beginning after December 31, 2021.
- Limit the gain deferral of a § 1031 Like-Kind Exchange to $500,000 per taxpayer per tax year for exchanges completed in years beginning after December 31, 2021. Note: Both legs of an exchange would need to close before year-end to avoid this proposal.
- Make permanent the § 461(l) Excess Business Loss Limitation for noncorporate taxpayers for years beginning after December 31, 2026.
- Increase IRS funding for examining taxpayers with incomes of more than $400,000.
- Revise the Consolidated Partnership Audit Regime to prevent the so-called stranded overpayment issue for Bipartisan Budget Act partnerships.
Please note that these bulleted items are just proposals from the administration. If you would like to know how they could impact your particular tax situation, please reach out to us at email@example.com